With bigger farms and fewer farmers, grain industry follows

Nearly 100 years ago, community-minded farmers gathered in the town of Halstead for a common purpose - to better market their grain.

In 1918, a cooperative elevator formed - a single location serving farmers who eked out a living from 160 acres of land.

Similar meetings were happening in other Kansas towns in the midst of this time of cooperation. And, through the middle 1900s, many communities supported single-location cooperatives where farmers brought their grain - a town's economic backbone.

However, these days, it seems, single-location, cooperative grain elevators are like dinosaurs. Most have merged or unified with neighboring communities as farms get bigger, accompanied by a growing global marketplace.

Even Halstead-based Farmers Coop Elevator has grown through expansion and now has locations in three other south-central Kansas communities, merging in 1991 with Mount Hope's cooperative.

Now, in an effort to keep relevant amid the growth of modern agriculture, Halstead's membership, along with that of Andale Farmers Coop, will vote March 3 on whether to unify.

In the past two years, at least three other cooperatives have voted or will vote on mergers. Nickerson-based Farmers Cooperative Elevator and Sterling's Farmers Coop Union will finalize a merger agreement March 1, becoming Central Prairie Co-op. Members of Farmers Cooperative Association based in Manhattan will vote March 6 on whether to merge into Moundridge's Mid-Kansas Cooperative.

In May 2012, the membership of Farmers Union Co-op in St. Mary's approved a merger by acquisition into Seneca-based Nemaha County Co-op.

"It used to be, 15, 20 years ago, the only time you'd see mergers was when one cooperative was going bankrupt and another cooperative would come in and bring them in and go on," said Jack Queen, the Halstead-based cooperative's general manager. "Today, you are seeing mergers of companies that are financially strong but are looking to go into a partnership so they can be stronger into the future and have more relevance and presence in the market."

The changing cooperative

In 1914, there were 200 farmer cooperative elevators in Kansas, according to a May 1928 article in the Kansas Union Farmer. Between 1914 and 1928, the author estimated, another 300 or 400 cooperatives were established.

Terry Bertholf recalls when he first started as an attorney with Hutchinson-based KFSA, which provides insurance and services to grain elevators, 40 years ago, there were at least 250 cooperatives still in existence.

Today there are less than 90, he said.

Grain elevators, he said, have been adapting in the past 40 years to technological changes on the farm. For instance, even how farmers truck their grain is different as more own large semis. Some farmers even haul grain several miles extra to a terminal for better prices, bypassing the local elevator altogether.

"Conversely, we have to manage this new farming," said Bertholf, who is with Martindell Swearer Shaffer Ridenour and serves at KFSA's general counsel. "Wheat harvest used to take a month. Now it can take a day or two and elevators have to be ready for it."

On the farm, margins have tightened over the years. The prices of machinery and fixed costs like seed and fertilizer have increased. So did the number of acres it took to make farming pencil out - going from 160 acres when pioneers settled the prairie to an average Kansas farm size of 800 acres today, according to the latest Census of Agriculture.

Even more proof is the number of farms, which has fallen from 174,500 in 1935 to about 61,000, the 2012 ag census shows.

The grain industry has followed. Most country elevators joined forces with neighbor towns, thus creating regional cooperatives. There is strength in numbers, cooperative officials say, which creates relevance in the industry. These cooperatives can offer more services, better markets and weather the ups and downs of the ever-changing farm economy.

Like all businesses, the business climate has gone through changes over the years, said Dave Christiansen, MKC president and chief executive officer. Cooperatives are no different.

"Any business that decides to operate - hopefully into perpetuity - will have to change as their customers and the environment they operate within changes," he said. "Our farmers have made incredible changes in how they operate and their overall productivity over the past 20 to 30 years. Because of this, our food is more plentiful, safer and certainly costs much less, as a percent of our total income, than it did back then. Many cooperatives, including MKC failed to keep up with the changes that our farmers were making. Now we're playing catch up."

Christiansen said cooperatives need to continue to have an attitude of growth to meet the changing needs of customers.

For instance, blacksmiths didn't go out of business because they were bad blacksmiths.

"A bigger company isn't necessarily better for anyone if the company doesn't make the changes necessary to adapt to the customer's needs for the future," Christiansen said.

Relevance

MKC officials announced last September plans to merge with Oakley's Frontier Ag, saying the time was right and such a merger would increase relevance in the industry. Recently, the cooperatives called off a vote set for this spring. Directors of the two cooperatives could not agree on all of the terms required to develop a merger document.

Christiansen said when MKC considers growth, it is about trying to do three things - attracting and retaining good people, infrastructure and asset renewal and relevance.

"In virtually any industry the larger you are the better opportunities you will receive," he said. "Vendors are chasing scale. Whether we're talking about leading edge programs you get to see first, better prices, more specialized expertise or partnerships in projects - all of these are things you can deliver value directly to customers."

Christiansen said he doesn't see disadvantages.

"Our strategy is to continue to have people at our locations make the vast majority of the decisions that affect customers daily on a local level," he said. "The people operating these locations are part of the communities they live, work and raise families in."

However, there will be fewer locations in the future, as cooperatives continue to grow and meet the needs of its producers, he said.

"Many times a new facility is built in the middle of three or four existing facilities," he said. "This is done for many reasons. I do know that as you look at the majority of the investments being made in rural America, they are agriculture related. I also know that if we started with a clean slate, many facilities would not be built exactly where they are today. The impact on the rural economy is benefited greatly as cooperatives continue to grow and thrive."

National trend

Kansas is similar to other farm states.

Christiansen noted one consultant said that there were 220 cooperatives in Nebraska in 1976. Today there are 35. Iowa has seen the same trend, dropping from 440 to 60.

"The same has been true in virtually every other state north and east of here," he said. "Kansas has been slower for multiple reasons. .... Mergers today are being considered for relevance reasons much more than in the past. Historically, one company had to be virtually broke in order to get them to the merger table. This was due to the negative connotations of merging. Today, in some instances, that is changing."

Board members at Nickerson and Sterling began merger talks last year when longtime Sterling manager Rich Fisher announced his retirement, said Nickerson cooperative's manager Joe Schauf. Schauf will become the new cooperative's general manager March 1.

It's about timing, Schauf said.

At Halstead, Queen said the timing was right for both Andale and his cooperative to look to the future. Both cooperatives have strong balance sheets and both are of similar sizes.

Unification means better buying power and more services for customers such as propane delivery, something Halstead no longer has. It also means less duplication of assets and asset placement in areas better suited for customers.

"We compliment each other very well," Queen said, later adding. "There are so many positives for our situation if our memberships can get over the emotional side and look at the business side."

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